The CPF Minimum Sum is raised today from $148k to $155k. Many are not happy. They are calling for the governments head.
I am not sure if they are understanding what they are ranting about. I have a feeling many are ranting because they are not going to see their money forever.
I taken this image from one of the ranting platform. It shows the gloomy picture of the crazy raising of this minimum sum.
I am probably not a good person to put this CPF Minimum Sum and CPF Life in an entertaining, thorough manner.
I leave it to Christopher Tan from Providend to explain it.
Hats off to him for making it so entertaining. Its 1 hour of explanation and unfortunately it is in Chinese. You can re-watch it a few times if you find it challenging to understand it.
He covers a lot:
- The CPF Minimum Sum
- Using the CPF to buy house and why you need to pay back the interest
- How the returns on all the different accounts is derived
- Your CPF RA Account
- The two different CPF Life Scheme and how they work
- What if you do not have enough for the minimum sum
After watching the video here are some points to think about. I hope they frame your mind well before you engage in some constructive discussion with your friends and colleagues.
The goal of CPF
What do you think CPF’s goal is for the people of Singapore. My thoughts is that it is to
- Save for near term, and long term medical needs (Medisave)
- Save for retirement
What are your Main Concern with Money in Retirement
When it comes to the monetary side of retirement, you are always saving up for $X.
How much of $X is enough?
$X should ensure that you
- Have enough each year to fulfill your annual expenses
- It should cover you for (1) over Y number of years till you passed away
Who owns your contribution to CPF
This will depend on how much of a fan of conspiracy theory you are. That aside, if you are contributing to your CPF, at the end of the day the CPF is your money. It is to be used to pay for your medical bills and insurance, or people related to you.
It is to be paid for your retirement and nobody else.
CPF is a form of forced saving. Can you forced save by yourself?
If you are reading this blog, chances are you are interested in value adding to your family’s financial well being. There is a high chance that you can do this very well.
As a group. Can majority of Singaporean’s save adequately by themselves
This is the part where I am skeptical. I have a problem helping some of my most well educated, highly paid friends to rid their spendthrift habits and save. I am sure some of you will face the same issue.
Without CPF, freeing up this 20% of your salary, can majority of Singaporean’s do better?
How well can you plan to address your main concern in retirement
Given that you are a financial savvy individual, touch your heart and ask yourself how good your plan is to ensure you cover your retirement risks well.
To help you, here are some of the parameters that you should be concern about
Read Retirement Risks: It all starts with Longevity
Read Breaking Down Retirement Risks
Listen to How to Convert Your Volatile Investment Portfolio Into Automatic Income with Wade Pfau
Listen to How to engineer your wealth using retirement calculators with Darrow Kirkpatrick
If you are the head of this country, how well do you think your people will be able to successfully address the previous point
At this point, we hope that the average or in fact, all Singaporean’s are able to plan and take care of the risks raised in the previous section. It does look like a mammoth task that requires some professional help. Can you realistically hope that 90% of your people, make a conscious effort to start planning what they need 40 years before they need it, and can follow through all the way?
Given the choice that you can take out that $155k worth of minimum sum, how would you make it address your retirement concerns
In an alternate universe, there is no CPF. Suppose you have forcefully save this $155k. We have list out your main concerns in retirement, having enough annually and covering till death.
How would you deploy your $155k to satisfy that?
Without the existence of CPF, would you save for Retirement proactively? Would your friends do that proactively?
In an alternate universe, CPF does not exist. Touch your heart and ask yourself if you will set aside an amount for retirement, be it rain or shine, whether how tough the world is.
At this moment can you name some friends and family members you know that will absolutely not do this.
Do you think $155k is enough for you to retire
Folks look at the minimum sum as an extremely large amount. The question to ask is, do you think $155k is enough to address the retirement concern rased in the second point?
If this is not enough, how much is required? Perhaps you can use this article on Financial Independence as a guide
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Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.
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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Insurance Start-up Havend. All opinions on Investment Moats are his own and does not represent the views of Providend.
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Melvink2
Wednesday 14th of May 2014
Hi Drizzit, Is there a transcript for that video or are you able to provide like key points of that video as I do not understand mandarin. Appreciate it. Thank you.
Kyith
Sunday 18th of May 2014
hi Melvin, sorry about it, i don't think there is a translation. If i were to translate, much will be lost in translation! The fact is that I can't be as clear as Christopher haha
PH
Monday 12th of May 2014
Hi Drizzt, by the time you and I retire, it could be already 1 million dollars. If you were to ask whether 155k is enough for retire? I would say yes and I think it can probably last for 15-20 years without the support from the children. For myself, if I am not working, staying at home and eating from the nearby coffee shop, no insurance, healthy with no sickness, $500 per month is already more than enough. But the fact is not many old people are 100% healthy, and when sickness come, 155k is probably not sufficient to pay for 1 year treatment cost.
From the table you provided, the increases since the beginning averaging as more than 5% per year, do we really has a 5% inflation excluding car and housing? It is somehow unjustifiable and causes me to think the the tightening of the outflow is probably due to lesser inflow to CPF.
In deed when you talk about retirement, I think healthcare is the major question mark. Government should tackle on the healthcare subsidy rather than keep increasing the CPF withdrawal limit. Another things to add, my parent were retired and living solely on reliance of my siblings and myself, to me is a responsibility of the children to take good care of the parent at least financially, but to some other, this is probably not the case. I think education is also equally important.
Kyith
Monday 12th of May 2014
Hi pH,
Thanks for providing your thoughts on the situation. I felt that it will not be 1 mil but will be much higher. The issue will be we would continue have to work.
Without a flat I have already reach minimum sum at age 34.
The key is not whether 155k is enough for Healthcare at old age but would the stream of income or annuity be enough. The projected payout is 1.1k per month based on that. Can you work with that.
Granted a lot think cpf is the be all end all. Which is not.